Industry leaders predict surge in private credit market, no strong desire for regulatory reform: HSF Survey

• over 90% expect continued growth in the corporate debt market share over the next decade
• borrower perceptions of high lending costs identified as top barrier
• real estate and consumer sectors identified as the most attractive for investment
• survey reveals no strong desire for regulatory reform: 50/50 split on whether reform is required

Senior leaders in the private debt sector are confident that private credit will play an increasing role in Australia’s economic future. Over 90% expect continued growth in the corporate debt market share in the next decade in Australia and Asia, with 50% anticipating significant growth.

However, borrower perceptions of high lending costs could present challenges to growth. Despite this, the survey reveals there is no significant desire for further regulation in Australia.

The findings are part of an inaugural report released by Herbert Smith Freehills (HSF), ‘A pulse on private credit investment in Australia 2025’ revealing insights from senior leaders[1] across ten global and national organisations directly involved in the private debt market.   

Outlook on private credit in Australia  

The strong growth outlook is bolstered by 64% of respondents who view private credit as essential in filling lending gaps left by financial institutions, while 21% see private credit as forming part of financial institutions' lending strategies. Real estate and consumer sectors are highlighted as the most attractive for private credit investment over the next decade.

Flexible terms and a higher risk tolerance are considered key benefits of private credit lending. The banking industry highlights private debt’s ability to lend in areas less focused on by traditional financial institutions as a top benefit. However, borrower perceptions of high lending costs may slow further growth, as well as competition among lenders and the resulting need to adopt aggressive pricing structures.

HSF Finance partner, Martin MacDonald said that responding to these barriers can be the catalyst for further growth in the sector.

“The number of private credit funds in Australia has grown significantly, increasing competition for new deals. Funds are adapting to this competition by diversifying their deal types, securing a steady pipeline of opportunities. We expect continued growth for credit funds as borrowers and sponsors recognise the advantages of private credit, such as flexible solutions and speed of execution, which were highlighted in our survey.

“Emphasising these benefits can help overcome perceptions of high lending costs and fuel sector growth.”

Regulation of the private credit market – is it fit for purpose?

As Australia prepares for increased regulatory scrutiny on the private debt market and an anticipated surge in the sector, organisations are evaluating the need for reform. Industry is evenly split, with 50% finding the current regulatory framework fit for purpose and the other 50% indicating that some reforms are required.

None indicated a need for significant change.

Of the 50% who said some reform was required, including both private and banking industries; licensing obligations and conduct requirements were the top two areas of reform identified. On the contrary, of the 43% who anticipate negative impacts from regulatory reform, the top impacts were increased compliance costs and borrowing restrictions.

HSF Corporate partner, Alice Molan, mentioned that the mild support for regulatory reform highlights a cautious approach within the industry regarding the impact of regulation on an emerging sector which is currently filling a gap in the market.

“The growth of private credit has regulators re-evaluating existing obligations. ASIC is examining compliance with governance and conflict of interest rules, while APRA is focused on the investment impacts on financial stability by superannuation, banking, and insurance entities. If regulatory requirements are updated, the compliance burden for lenders will likely increase.

“This is a global conversation that regulators are having about what is the right level of oversight without undermining the benefits that private credit brings to the financial system.”

Common private debt investment strategies

Private credit lenders said the most attractive private deal size for their organisation is between USD 101 million – USD 500 million, with 70% indicating they are expecting to increase their target deal size in the next five years.

HSF Finance partner, Phillip McMahon said the expected increase in deal size activity is further indication of the anticipated in growth in private debt investments in Australia.

"Private credit already plays an important role in filling gaps where traditional lenders may not be prepared to provide sought after capital. It looks like that role will likely increase over the next 5-10 years with private credit becoming increasingly important in larger deals, either as a sole source of funding or as part of the capital structure as an option for traditional lenders to mitigate or share risk.”

For a full view of the survey findings, read our short report ‘A Pulse on private Credit Investment in Australia 2025’.